The Phony Trump-Ford War

The battle between President-elect Trump and the Ford Motor Co. is continuing post-election, and provides a glimpse into what big business might expect from a Trump administration.

At 9 p.m. last night, Trump posted a notice on his Twitter account saying Ford Chairman Bill Ford had just told him the company “will be keeping its Lincoln plant in Kentucky – no Mexico.” He later wrote in a second post “I worked hard with Bill Ford to keep the Lincoln Plant in Kentucky. I owed it to the great state of Kentucky for their confidence in me!”

But the company said it never had any plans to shut the Kentucky plant, and likely could not do so under its United Auto Workers contract. At issue, instead, was the company’s plan to move production of one car, the MKC sport utility vehicle, to Mexico and replace it with expanded production of the Ford Escape. It will now continue to manufacture the MKC in Kentucky.

Ford, clearly not eager to extend its fight with the incoming president, issued a diplomatic statement saying: “We are encouraged that President-elect Trump and the new Congress will pursue policies that will improve U.S. competitiveness and make it possible to keep production of this vehicle here in the United States.”

Meanwhile, leaders of Pacific Rim countries – including President Obama and Chinese President Xi Jinping – are gathering in Peru this morning to ponder the future of trade arrangements. The U.S. spent five years working on the Trans-Pacific Partnership, an trade arrangement that excludes China. But President-elect Trump has branded the deal a “disaster.” Now President Xi is pushing an alternative, the Regional Comprehensive Economic Partnership, which excludes the U.S.. In related news, Vietnam said yesterday it would shelve ratifying TPP.

At the risk of laboring the point, if the U.S. decides to withdraw from global trade, then it will simply hand leadership of the issue to Beijing. Now, will that give U.S. citizens a better deal in the long run, or a worse one?

Here’s How Donald Trump’s Trade Policy Could Backfire

Donald Trump’s threats to slap steep tariffs on Chinese and Mexican imports may have won him votes in Republican primaries but they would likely backfire, severely disrupting U.S. manufacturers that increasingly depend on global supply chains.

The Republican presidential front-runner’s campaign pledges to impose 45 percent tariffs on all imports from China and 35 percent on many goods from Mexico would spark financial market turmoil and possibly even a recession, former trade negotiators, trade lawyers, economists and business executives told Reuters.

“I don’t mind trade wars when we’re losing $58 billion a year,” Trump said in a Feb. 25 debate, referring to the 2015 U.S. goods trade deficit with Mexico. Economists dispute the idea the United States is “losing” money as the trade deficit is simply the difference between what the United States imports and what it exports to a country.

“Imposing tariffs or putting up trade barriers may sound good, but it will hurt our economy and credibility,” said Wendy Cutler, the former acting deputy U.S. Trade Representative who helped lead U.S. negotiations in the 12-nation Trans-Pacific Partnership trade deal last year.

Among those hardest hit would be the U.S. auto industry, which has fully integrated Mexico into its production network. Some $118 billion worth of vehicles and parts flowed north and south across the border tariff-free last year, according to U.S. Commerce Department data.

A 35 percent tariff would raise costs for Ford Motor Co’s f U.S.-assembled F-series and medium-duty pickup trucks that use Mexican-made diesel engines, one of its most profitable vehicle lines.

Ford CEO Mark Fields on Wednesday defended the company’s investment strategy, which includes $9 billion for U.S. plants over the next four years, saying, “We will do what makes sense for the business.”

Buyers of Fiat Chrysler Automobiles NV’s fcau popular Ram 1500 pickup trucks assembled in Saltillo, Mexico, could see their $26,000 base price pushed up by $9,000 if the tariff is fully passed on to consumers. A Chrysler spokesman declined to comment on Trump’s statements.

Trump’s campaign said in a statement that U.S. trade policy constitutes “unilateral economic surrender” and needs complete change because it allows foreign competitors to shut out U.S imports, devalue their currencies and unfairly target U.S. industries.

“I don’t think he does our issue any favors by making it so incredibly jingoistic and bombastic,” said Scott Paul, president of the Alliance for American Manufacturing, a group that allies domestic steelmakers and other manufacturers with the United Steelworkers union.

“But I believe there’s widespread agreement … that there is something amiss with our economic relationship with China and it’s past time that our government pushes back a little more forcefully.”

It would take years for U.S. industry to rebuild supply chains devastated by sudden tariff hikes on Chinese and Mexican goods and any retaliatory measures, said Peter Petri, a Brandeis University professor who has co-authored an influential study on the effects of the TPP trade deal on national income.

Even if U.S. firms were able to make such a transition, Petri said this would likely result in a permanent annual reduction in U.S. national income of more than $100 billion, or 0.8 percent.

Trump’s tariff plans would effectively violate NAFTA and revoke U.S. commitments to the World Trade Organization, say trade lawyers.

Beijing and Mexico City “are just going to retaliate on the things that are likely to hurt us most,” said Susan Schwab, the U.S. Trade Representative from 2006 to 2009 in the George W. Bush administration. Schwab negotiated major portions of free trade agreements with South Korea, Colombia and Panama.

In 2009, Mexico slapped duties up to 25 percent on more than 90 different U.S. farm goods, from pork to frozen potatoes due to foot-dragging by U.S. lawmakers on allowing Mexican truckers on to U.S. roads, as specified under NAFTA. The National Potato Council estimates that U.S. growers lost about $70 million in revenue over 31 months, a 50 percent cut from their third-largest export market.

Mexico’s economy minister, Ildefonso Guajardo said last week that big tariffs on Mexico would return the United States to “an isolationist, xenophobic and protectionist vision.”

And a full-scale tariff war with China would likely expose the largest U.S. export sectors to steep duties, including aircraft, semiconductors, corn and soybeans, trade lawyers said.

Retaliatory tariffs would also hurt growing U.S. vehicle exports to China – at 300,000 a year now equivalent to the annual output of a large assembly plant. General Motors Co gm is now planning to import a Buick sport-utility vehicle from a Chinese joint venture plant.

A GM spokesman declined to comment.

China’s state-run Global Times newspaper called Trump “big-mouthed, anti traditional and abusively forthright” in an editorial, but did not directly address his tariff proposals.

In 2012, the U.S. Commerce Department slapped anti-dumping duties of up to 78 percent on Chinese solar panels after German-owned SolarWorld AG complained that below-cost Chinese imports were hurting its U.S. production.

China responded with its own 57 percent duties against U.S. producers of polycrystalline silicon, the raw material for photovoltaic cells. This put the brakes on an industry that was fast expanding to meet demand from Chinese solar panel makers.

Hemlock Semiconductor, controlled by Dow Corning, abandoned construction of a $1.5 billion new polysilicon plant in 2014. Dow Corning spokesman Jarrod Erpelding said Hemlock “serves as a strong example of how trade disputes often have unintended consequences.”

“This is really stupid,” said Francine Sullivan, chief legal officer of REC Silicon in Moses Lake, Washington, which halted production this year. “The necessity and value in putting on tariffs to protect solar panels in the U.S. was just not thought through. We’ve suffered enormous financial damage as a result of this.”

The Trump campaign said measures like tariffs would level the playing field and help bring “millions of manufacturing jobs back to the United States.”

But Durwin “Oodie” Royal, a furnace operator at U.S. Steel Corp’s Lone Star Tubular Operations in Texas, knows first-hand that such relief can be temporary.

Workers at the plant cheered when the United States imposed anti-dumping duties on Chinese drilling pipe in 2009 and 2011. But the company announced on Friday that it would temporarily idle the tube mill, laying off 450 workers as it battles a slump in U.S. oil and gas drilling, a continued global steel glut and “unfairly traded imports.”

“When they slap tariffs on one country, the imports just come in from another country,” said Royal, who expects to be among those workers who are idled.

After the tariffs were imposed on China, South Korean imports surged, he said. “Right now, we’re just limping along like everybody else.”

Mexico’s Carstens Says ‘Implicitly’ Weighing Risk of Trump Victory

Mexico central bank governor Agustin Carstens said on Friday he is “implicitly” factoring in the possibility of Republican hopeful Donald Trump becoming U.S. president in the bank’s economic risk models.

In an interview with El Financiero/Bloomberg Carstens was asked whether the chances of Trump, a persistent critic of the North American Free Trade Agreement, becoming the next president of the United States was in the central bank’s risk models.

“Well, explicitly, no,” Carstens said. “But implicitly all of us have it in our heads, this possibility.”

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Carstens was also asked about Mexican monetary policy in the coming months after the bank launched a surprise rate hike on Feb. 17 to shore up the peso currency, which had been falling sharply against the dollar since the end of 2014.

He reiterated that the February move was not the start of a monetary policy tightening cycle, but that the bank would be following moves by the U.S. Federal Reserve closely.

“Our monetary policy will above all be led by … the exchange rate, the monetary policy relative to the United States and the inflationary pressures that could occur due to the economic cycle in Mexico,” the central bank governor said.

Trump, front-runner to win the Republican presidential nomination for the Nov. 8 election, sparked outrage in Mexico with campaign vows to slap tariffs on Mexican exports and to build a southern border wall and make Mexico pay for it.

Mexican President Enrique Pena Nieto said this month his country would not pay for Trump’s proposed wall along the U.S.-Mexico border, and likened his “strident tone” to the ascent of dictators like Adolf Hitler and Benito Mussolini.

The agency, in a preliminary ruling, determined that the manufacturers unfairly benefited from government subsidies. The new tariff rate ranges from roughly 18%-35%, above what some analysts say the Chinese companies had anticipated.

Shares of Yingli Green Energy YGE, Trina Solar TSL, JinkoSolar JKS, and several others were all dragged lower on the news. Conversely, the stocks of U.S.-based solar firms SunPower SPWR and First Solar FSLR leapt higher, as some analysts said the tariffs could help those companies boost market share over time.

The U.S. subsidiary of German-based SolarWorld AG petitioned for the tariffs, which the U.S. government ultimately approved. The determination is preliminary until a final determination by the U.S. International Trade Commission, which is expected in October.

Also, the current decision closes a loophole of buying Taiwanese cells and converting them into China modules, Shah said.

Several of the China-based companies lamented the U.S. government’s decision earlier Wednesday. Trina Solar, for example, said it was disappointed in the preliminary findings and said its transactions in the U.S. followed international trade practices.

Yingli Green said the use of tariffs “are not the answer to driving affordable solar energy.”

“Today’s decision will unfortunately make solar power more expensive for American consumers and diminish opportunities for tens of thousands of U.S. solar jobs,” said Robert Pertina, a managing director for Yingli Green’s Americas division.

The Chinese government was less diplomatic, accusing the U.S. of naked protectionism. Reuters reported a China Ministry of Commerce statement saying that the U.S. had “ignored the facts” and abused trade rules in order to protect its own industry, adding that the use of trade measures “would not solve the development problems of the U.S. solar industry.”

Global solar photovoltaic installations are expected to jump 22% in 2014, according to data provider IHS Inc. IHS said the strong growth, higher than the firm’s forecast in October, was due to recent policy changes in China and Japan–the two largest markets. Though the U.S. market for solar products is far smaller than China, installations there increased 41% in 2013, and solar accounted for 29% of all new electricity generation capacity added last year, according to Solar Energy Industries Association.

The merchandise affected by the Commerce Department’s decision includes crystalline silicon photovoltaic cells, modules, laminates, and panels consisting of crystalline silicon photovoltaic cells. The value of the imports of those products from China totaled about $1.5 billion last year, the Commerce Department said.